Stuck in decline

In most of the countries across East-Central and Southeast Europe, the trend toward eroding democracy and deteriorating governance is continuing. The negative effects of the coronavirus pandemic on economic development in the region have been less severe than initially feared. There is hope in the fact that civil society actors across the region are pushing back against their governments’ authoritarian tendencies and mismanagement.

The findings are clear, but discouraging: For at least a decade, the region of East-Central and Southeast Europe has been sliding downward in all dimensions of transformation. Since the BTI 2012, the average level of democracy in the region has been falling steadily, as has the number of democracies in consolidation. The backsliding observed in Serbia and Hungary has been so pronounced that both countries are just on the verge of being classified as “highly defective democracies” in the BTI 2022. Both countries, like Poland and Slovenia, are led by governing parties that advocate a vision of democracy inspired by Putin’s Russia or the radical right in the West, and whose authoritarian approach to governance deliberately undermines democratic institutions and norms. Governance has also deteriorated with practically no interruption on a regional average. Only governments in the Baltic states continue to demonstrate “very good” governance in the BTI 2022.

The pandemic has impacted economic transformation in the region less than initially feared and less than was the case in most other BTI regions. The crisis has not shaken the foundations of market orders in the region, most countries in the region dealt with the first wave of the pandemic relatively well, and GDP across the region is expected to recover quickly. However, by the end of the period under review for the current BTI, the pandemic situation took a turn for the worse. In fact, in July 2021, no fewer than six countries in the region ranked among the world’s top ten countries with the highest COVID-19-related death rates. Given that any attempt to manage the pandemic involves massive spending on health care and economic stimulus measures, it remains unclear how the region’s governments will cope with the expected increase in public indebtedness.

Political transformation

Destruction at the hands of illiberal leaders

In the area of political transformation, two countries were particularly able to escape the pull of downward trends. North Macedonia (+ 0.40 points), for example, began to boost the operational capacity of its democratic institutions and restore freedoms of expression after the dramatic fall of long-time Prime Minister Nikola Gruevski. Romania, where the new National Liberal Party-led government proved able to reverse some of the backsliding brought about by the corruption-plagued Social Democratic Party (PSD), has returned to its previous status of a “democracy in consolidation” (+0.35 points).

Once again, some of the usual suspects showed the largest democratic losses. In Poland, which is clearly following in Hungary’s footsteps, the quality of democracy has steadily deteriorated since 2016, particularly with regard to the independence of the judiciary, freedoms of the press and expression and, most recently, the integrity of elections. The severity of democratic erosion in Poland accounts for the fact that the country has fallen relatively quickly from its position of second-best (BTI 2016) to third-worst (BTI 2022) among the 11 EU member states included in the BTI. However, the biggest drop in the Democracy Index was recorded by Serbia (–0.70), where President Aleksandar Vučić consolidated his power as the opposition boycotted the June 2020elections. In a clearly unconstitutional move, Vučić had earlier declared a state of emergency in response to the coronavirus, though without the consent of parliament. Parliament remained suspended for more than 40 days. Virtually nothing remains of the promise of democracy Serbia showed in the 2010s.

Although Slovenia’s democracy remains relatively robust, the country’s government has significantly restricted political participation rights. The new prime minister, Janez Janša, waged attacks on journalists and freedoms of expression, threatened the Slovenian Press Agency with drastic funding cuts, and used COVID-19 as a pretext to silence critics and place restrictions on the freedom of assembly.

Comparing the scores of this issue of the BTI with those of the BTI 2006 illustrates the longer-term decline in the region’s quality of democracy. Whereas eight countries in the latter registered an overall political transformation score of more than nine points, in the BTI 2022, this is now only true for the Czech Republic and the three Baltic republics – although Estonia was recently tainted with the stigma of having a far-right party in government. As a member of the governing coalition in 2019 and 2020, the Conservative People’s Party (EKRE) regularly attacked the “liberal mainstream media” and LGBTQ+ organizations, demonstrating an aggressive antagonism that we also see cultivated in Hungary and Poland. The Orbán administration’s attempts to push sexual minorities back into the closet culminated in a ban on teaching LGBTQ+ content for minors introduced in June 2021 under the guise of harsher penalties for pedophilia. Just nine months earlier, in November 2020, a constitutional amendment was ratified that allows only married, heterosexual couples to adopt children.

Alongside these more identity-driven value conflicts (over gender issues, sexual minorities and migration), ethnic and religious divisions have deepened in some countries. Bosnia and Herzegovina has continued to struggle with centrifugal forces, and Montenegro has seen increasing polarization and political conservatism, which has also increased the influence of the Serbian Orthodox Church.

Economic transformation

Reforms needed despite economic stability

As of January 2021, the economic effects of the COVID-19 pandemic have been limited, particularly for those countries whose economies are not overly dependent on tourism. Also, the economic shock has been cushioned by often generous government programs that have helped keep unemployment levels and loan default rates low.

In most countries, these programs have led to an increase in public debt, which was well below the EU average in many of the region’s countries before the outbreak of the pandemic. While GDP is expected to recover quickly, the fiscal scope for introducing deeper structural reforms has narrowed. Of greater concern is the increased debt ratio among the EU accession candidates in the Western Balkans. Montenegro’s debt burden, for example, rose to 109% of GDP in 2021, which means it will find it exceedingly difficult to start making payments on its €2 billion loan from a Chinese creditor for the Bar-Boljare highway. China currently holds about one-quarter of Montenegro’s total debt. Negotiations with European creditors are underway. The concern here is that a bankrupt Montenegro would trigger a domino effect across the Western Balkans region.

In contrast, Croatia is doing surprisingly well despite the fact that its tourism industry, which was hit hard by the COVID-19 pandemic, is one of its key economic mainstays. The country’s health care system has been solidly financed, and the government of Prime Minister Andrej Plenković has responded to the pandemic with appropriate measures for the most part and prevented a significant rise in unemployment. In July 2020, Croatia joined the European Exchange Rate Mechanism (ERM) II along with Bulgaria, taking a crucial step toward joining the eurozone in 2023 or 2024.

Having some leeway in terms of fiscal policy will be of enormous importance for medium-term economic developments across the region, as the pandemic has underscored existing problems and the need for reform. Governments will need to reduce in equalities in access to health care, expedite digitalization in education, and reduce the vulnerability of precarious or non-standard workers.

The fact that a strong politicization of institutions and the dismantling of oversight mechanisms can also have negative effects on economic development is illustrated by the setbacks observed in the area of competition policy. In the Czech Republic, political pressure wielded by the government is compromising the independent supervision of public procurement processes. Motivated by political interests, Hungary is increasingly relying on simplified procedures to monitor corporate mergers, particularly in the media and banking sectors. In fact, the country now has one of the highest percentages of single-bidder public tenders in the EU. In Romania, too, clientelism and corruption are undermining public procurement procedures, particularly at the local level, and the use of fast-track procedures during the pandemic has only made matters worse.

In Poland, the policies of the governing conservative PiS party have fostered economic growth, employment and fiscal stability. However, the party’s success has been overshadowed by the political particularism it has pursued, by which the government favors its base of support made up of pensioners and those who identify themselves as upholding “traditional family values.” As in most other EU countries across the region, economic stability is partially underpinned by substantial EU funding. For example, this accounts for up to 25% of Poland’s economic growth – a particularly relevant dependency given Poland’s (and Hungary’s) disputes with the EU under the new rule of law mechanism and the Article 7 procedure.

Governance

Citizens are mobilizing

Notably, Poland has also registered the greatest losses in the Governance Index (–0.85 points). Increasingly autocratic leadership here as well as in Hungary, Serbia and Slovenia represents one of the largest problems, as the governments of these countries are seeking to further polarize rather than build consensus among the various societal actors.

For the countries of the Western Balkans, the fading prospect of EU membership poses a considerable challenge. There are clear doubts about the EU’s willingness and ability to absorb new members anytime soon. For various reasons, the integration processes of candidate countries Albania, Montenegro, North Macedonia and Serbia are currently at a standstill. Insufficient reforms are to blame in most cases, but the example of North Macedonia also illustrates how EU member states can torpedo the process for domestic political concerns. North Macedonia has made considerable efforts to meet most of the accession criteria in addition to joining NATO in March 2020. Nevertheless, Bulgaria vetoed the start of North Macedonian accession talks in December 2020, a move that was motivated by nationalist interests in the runup to the country’s elections. Given their unresolved problems related to stateness, Bosnia and Herzegovina as well as Kosovo currently have no prospect of accession.

In the short term, however, the coronavirus pandemic has overshadowed such issues. Most of the region’s countries responded quickly to the crisis, introducing very strict measures in the spring of 2020, which paid off in some cases, such as in Slovakia. As elsewhere, the early success of the country’s timely response arguably led to a premature and overly extensive easing of regulations as well as to skepticism about the pandemic’s severity. At the same time, the increase in civic activism has proved to be a positive factor. Volunteering has played a major role throughout the pandemic response, which has generally fostered trust in civil society organizations.

This strengthened sense of solidarity has been accompanied by an increasing mobilization of the public. In fact, the number of people drawn to the streets in some countries hasn’t been this high since the pro-democracy movements of 1989. In the fall of 2019, teachers’ unions in Croatia went on strike for better salaries and working conditions. The “One of Five Million” demonstrations against the government in Serbia were interrupted only because of pandemic restrictions. Protests against corruption in neighboring Montenegro were followed in 2019 by demonstrations against nationalizing property of the Serbian Orthodox Church. Throughout the pandemic, thousands have protested in Slovenia against the autocratic tendencies of Janez Janša’s government. And in Bulgaria, hundreds of thousands came out to protest against corruption and state capture under Bulgarian Prime Minister Boyko Borisov. In October 2020, the Polish “Women’s Strike” protests emerged in response to the decision of the country’s Constitutional Court to uphold the law strictly banning abortions. In the Czech Republic, massive demonstrations in 2019 called for the resignation of Prime Minister Andrej Babiš, who has been embroiled in a scandal involving the channeling of EU subsidies to his companies, among other things.

Outlook

Between state capture and progress

While these developments give rise to hope that democratic achievements across the region can be preserved, high levels of mobilization and the public’s willingness to protest cannot always be equated with progress. In fact, the mass protests seen in Bulgaria and Montenegro may have only contributed to instability. In Romania, however, civil society is clearly responsible for the fact that the worst excesses of corruption have been brought to an end. Remarkably, Romania also suggests that electoral change does not always – or even usually – benefit nativist or anti-democratic actors.

However, in Poland and Hungary, the state and its institutions are increasingly being subjected to state capture at the hands of the PiS and Fidesz parties. Whether EU measures can do anything about this is an open question. Things look a bit brighter in Slovenia. The government, which tends to be authoritarian, lost its parliamentary majority in early 2021.

Democratic progress still seems unlikely in Serbia, as Aleksandar Vučić and his SNS party now have absolute control over the mechanisms of power, and the country appears extremely torn between its dual loyalties to the West and Russia. In other countries of the Western Balkans, the dwindling prospect of EU membership comes at a particularly bad time for reform efforts, especially since the established (mostly pro-European) parties are viewed as ineffective and corrupt while China and Russia are simultaneously expanding the reach of their soft power.